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An Economic 'Sell' Signal by Christmas?

By: Clif Droke | Monday, November 12, 2012

With the U.S. presidential election out of the way, the economy has taken
center stage lately and for good reason: the economy typically benefits during
a presidential election year while the 4-year Kress cycle is also peaking.
The latest economic reports strongly indicate that the U.S. consumer has benefited
(or at least feels he has benefited) from this year's presidential cycle and
the loose money it typically brings.

The 4-year cycle peak is over, however, and year 2012 is coming to a close.
Unless the Obama/Bernanke administration can pull an ace from its sleeve -
and soon - 2013 is looking to be far bleaker than 2012.

Earlier we mentioned the positive payroll report that was released on Friday.
The U.S. economy has become a source of optimism in the mainstream financial
press lately, helped by improving numbers in the jobs market, retail sales,
real estate prices and consumer confidence. By one measure of consumer confidence,
consumers haven't been this optimistic about the economy's prospects since
2007. Retail sales have increased for three consecutive months, while the
U.S. savings rate fell from 4.4 percent to 3.7 percent from the end of June
to the end of August. Clearly, the typical American consumer is feeling better
about the economy.

Businesses don't share this sentiment, however. Companies of all sizes are
reducing the number of investments they make, causing capital spending to
drop. According to Bloomberg Businessweek, "Orders for non-defense
capital goods, a proxy for expectations of future business spending plans,
fell at an annual rate of 17.8 percent from July to September, the steepest
decline since the first quarter of 2009, the last few months of the recession."

Businessweek further pointed out that company CEOs are gloomier on
the profit outlook than they've been since the third quarter of 2009 and foresee
slower economic growth for 2012 and have lower expectations for sales, capital
expenditures and hiring. As one analyst observed, "Corporate earnings do not
paint the picture of such a positive consumer that we're seeing."

Although there is not a definite correlation between consumer spending and
corporate spending, businesses do tend to be more forward-looking than consumers.
Could it be that corporate America sees something on the economic horizon
that consumers don't see - something that has made corporations fearful of
spending?

The year 2012 has been a relatively good one for the economy but keep in mind
that after the 4-year cycle peaks the momentum behind a strengthening economy
tends to wane. The first year of a presidential cycle is typically one of
the worst and that doesn't bode well for the 2013 outlook.

What I find somewhat troubling is that while our in-house New Economy Index
(NEI) is still technically in a rising trend, it has been weakening in recent
weeks and has already fallen below its 12-week and 20-week moving averages
for the first time since 2011. If the 12-week MA falls below the 20-week MA
while the index itself is declining we'll have the first economic "sell" signal
since early 2010. That in turn would bode ill for the 2013 outlook and would
pretty much confirm the bearish picture the Kress cycles paint for next year.

The NEI is still a few weeks away from completely rolling over and likely
won't give a sell signal before Thanksgiving. If it does confirm a sell signal
by the end of this year then we'll be able to say that the latest spate of
bullish economic headlines was a classic case of everything looking rosy at
a top. We might also say that, as is often the case, presidential election
years can paint a very deceiving picture of the economy.

2014: America's Date With Destiny

Take a journey into the future with me as we discover what the
future may unfold in the fateful period leading up to - and following - the
120-year cycle bottom in late 2014.

Picking up where I left off in my previous work, The Stock
Market Cycles, I expand on the Kress cycle narrative and explain how
the 120-year Mega cycle influences the market, the economy and other aspects
of American life and culture. My latest book, 2014: America's Date With
Destiny, examines the most vital issues facing America and the global
economy in the 2-3 years ahead.

The new book explains that the credit crisis of 2008 was merely
the prelude in an intensifying global credit storm. If the basis for my prediction
continue true to form - namely the long-term Kress cycles - the worst part
of the crisis lies ahead in the years 2013-2014. The book is now available
for sale at: http://www.clifdroke.com/books/destiny.html

Order today to receive your autographed copy and a FREE 1-month
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Clif Droke is the editor of Gold & Silver Stock Report, published
each Tuesday and Thursday. He is also the author of numerous books, including
most recently, "2014: America's Date With Destiny." For more information visit www.clifdroke.com

Clif Droke is the editor of the two times weekly Momentum Strategies Report
newsletter, published since 1997, which covers U.S. equity markets and various
stock sectors, natural resources, money supply and bank credit trends, the
dollar and the U.S. economy. The forecasts are made using a unique proprietary
blend of analytical methods involving cycles, internal momentum and moving
average systems, as well as investor sentiment. He is also the author of numerous
books, including most recently "The Stock Market Cycles." For more information
visit www.clifdroke.com